Newsletter

20

If you have been close to the Bitcoin space, you may have heard of the so-called scaling debate that is going on at the moment. We referenced some of this discussion in one of our posts on the 2017 outlook on Bitcoin.

Why Bitcoin Needs to Scale

Bitcoin does numerous things, of which one is to serve primarily as a payment system. Bitcoin’s blockchain currently has a capacity limit of 1MB (of information) for each block that is created and added to the chain. In reality, 1MB on its own does not hold much information. As a result, transactions ready to move through the network become stuck waiting until the next block is created. That means at best, a 10 minute wait is expected for each new block to come along. Those who want Bitcoin to succeed as a payment system don’t like the idea of waiting 10 minutes for each block confirmation on a transaction, especially when on MasterCard and Visa transactions are nearly instantaneous.

In practise the limited block size creates a serious backup of transactions waiting for confirmations, to the extent that a bottleneck now exists on the network. If Bitcoin is to succeed in becoming a practical form of sending payments, then finding a way to increase traffic needs to be achieved through scaling of the network.

Various groups have proposed different methods of increasing the block size to enable more transactions to move through the network, and faster.

Scaling Option 1: Segwit

Segwit is the short name for Segregated Witness. The witness is the signature in the transaction as one of the main parties along with the sender and the receiver. More information can be included in the 1 MB block if the signature portion, the witness, is segmented from the rest of the transaction. The real net increase is expected to enable Bitcoin blocks to hold ~2MB of information or twice what they hold now. This is considered a ‘soft fork’ or minor change in the Bitcoin Core software.

Scaling Option 2: Bitcoin Unlimited

Unlike Segwit, Bitcoin Unlimited is a hard fork, which means Bitcoin may end up having two blockchains. It’s a divergent change like picking which side of a fork in the road you will take in your car. The road untaken would be the current Bitcoin core software and the one taken, if approved, would be Bitcoin Unlimited. The argument Bitcoin Unlimited makes is that it can scale up the maximum block size as needed starting with a 2MB increase.

Earlier versions, however, report Bitcoin Unlimited client issues when reading some Segwit transactions. New code is constantly tested and will be fixed but one of the important pieces of the report is that network nodes and miners will have to choose as they will not be able to read transactions from both networks. It will be a true fork where a direction must be chosen.

Both have their advantages and disadvantages and both have their advocates and detractors. As a company, Magnr does not take an official stance other than our CEO Joe Lee’s post on what we will do in the event of a hard fork.

Volatility = Opportunity

After record low volatility in 2016, we have seen huge increases in volatility during the first quarter of 2017; much of which has been attributed to the current scaling debate. Volatility based on this uncertainty, as well as decisions made by the development community, the miners, and users like you mean that there are plenty of opportunities to trade Bitcoin on your Magnr account.

At this time it would be difficult to know exactly what will happen to the price. What we can expect is for the volatility to continue for a while yet, especially if a hard fork were to take ever place. This will present long, short or even both long and shorting opportunities to trade on the moving price of Bitcoin.

Accessibility to multiple liquid exchanges, leverage, and the security of multi-signature wallet technology mean that you have choices and security when trading or investing your Bitcoin with us, regardless of which direction the price goes during this latest ongoing debate.